The SEC today indicted four individuals for helping Bernie Madoff in his colossal Ponzi scheme. One of the individuals was a registered rep and a second was an investment advisor. If the allegations are true, the men and one woman are quite wicked—or kept themselves willfully (“recklessly,” says the SEC) ignorant.

In a release, the SEC said it charged Cohmad Securities Corp. as well as its chairman Maurice J. Cohn, chief operating officer Marcia B. Cohn, and registered representative Robert M. Jaffe for actively marketing investment opportunities with Madoff while knowingly or recklessly disregarding facts indicating that Madoff was operating a fraud. In a separate complaint filed in the same court, the SEC charged California-based investment adviser Stanley Chais, who oversaw three funds that invested all of their assets with Madoff. When the Ponzi scheme collapsed, Chais investors’ accounts were valued at nearly $1 billion.”

Robert Khuzami, Director of the SEC’s Division of Enforcement said in the release: “Madoff cultivated an air of exclusivity by pretending that he was too successful to trouble himself with marketing to new investors. In fact, he needed a constant in-flow of funds to sustain his fraud, and used his secret control of Cohmad to obtain them.”

Cohmad, which earned $100 million in fees, merely gathered assets for Madoff (more than 800 accounts and billions of dollars); those fees sometimes represented 90 percent of Cohmad’s revenue in some years, the SEC says. Cohmad had to know that Madoff was a fraudulent enterprise because of its unusual fee structure. Madoff would quit paying a fee to Cohmad clients if the client withdrew his principal—despite the fact that Madoff may had still “managed” the client’s “paper profits.”

As for Chais, his funds acted as feeder funds for Madoff, earning more than $250 million in fees for his “services,” the SEC says. Many of Chais’ investors had no idea their money was being fed to Madoff. The SEC further argues that Chais knew Madoff was running a Ponzi scheme, since Chais asked Madoff to
The SEC release states that the “SEC also alleges that Chais ignored red flags indicating that Madoff’s reported returns were false. For example, Chais told Madoff that Chais did not want there to be any losses on any of the Funds’ trades. Madoff complied with Chais’s request, and from 1999 to 2008, despite reportedly executing thousands of trades on behalf of the Funds, Madoff did not report a loss on a single equities trade. Chais however, with the assistance of his accountant, prepared account statements for the Funds’ investors based upon the Madoff statements, and continued to distribute them to the Funds’ investors even though he should have known they were false.”

And, says the SEC, Chais and his family made out pretty well. “According to the SEC’s complaint, Chais also opened and exercised control over approximately 60 other accounts at Madoff’s firm on behalf of his family members and related entities. Taking all of these accounts collectively, between 1995 and 2008, Chais and his family members and related entities withdrew more than $500 million more than they actually invested with Madoff. “